How To Reduce Mortgage Debt - 5 Effective Mortgage Debt Tips
1. Overpayments
A great way to reduce mortgage debt is to make overpayments where possible. The common misconception is that these have to be sizeable amounts, but the truth is that any overpayment will contribute towards paying off your mortgage a little earlier and this means that you will pay less in interest charges in the long term. Consider taking on a second job to earn some extra income or find some savings from your existing personal finances. An extra £50 per month overpayment would mean an extra £600 per year, which is the equivalent of perhaps one extra monthly mortgage payment a year. Keep that up over the period of a 25 year mortgage and you could pay your mortgage off a few years earlier than expected as well as savings money on additional interest payments.
2. Downsize and Payback
Consider whether you could reduce your mortgage debt by downsizing to a smaller property. That four bed roomed property that you raised you children in may hold many memories but do you still nee it now that the children have grown up and left? By moving to a smaller property you could make a profit on the sale of your bigger house and use the difference to reduce your mortgage debt further, as well as saving money on monthly repayment costs. You may also find that you will save money in monthly maintenance costs and household utility bills, which could then be used to make further additional overpayments on your mortgage debt and pay it off more quickly.
3. Share the Risk
If you live alone in a larger property consider sharing the risk by asking a friend to move in or advertising for a lodger. The money generated from their rental income can be used directly to reduce your mortgage debt further by making additional mortgage overpayments.
4. Shared Ownership
If you live in a shared ownership property, consider selling a share in your property back to the housing association and use the money to reduce your mortgage debt further by making mortgage overpayments. Usually this is done in 25% chunks. Check whether your housing association will buy back a share.
5. Offset Mortgages
Offset mortgages work in a very simple but effective way. Each month your savings and current accounts are checked to see if you are owed interest. If you are then this interest is taken off your mortgage capital amount that you owe to your lender rather than added to your savings or current account as interest. This is great when savings rates are lower than mortgage rates because you are essentially paying off debt that you would be charged a higher rate of interest upon. However offset accounts are not so good when mortgage rates are lower than savings rates because you could have earnt more by leaving your money in a savings account to gain a better rate of interest.
However offset mortgages are a great way to automate mortgage overpayments to help reduce your overall mortgage debt. It also quite exciting at the end of the year to see how large the overpayment is that you have made for that year on your mortgage.
Check out some of our other free money saving articles and guides;
Debt Related:
Other Money Saving Tips: